Mastering Irs Form 8993: 5 Essential Filing Tips

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As a business owner or accountant, you're likely familiar with the complexities of tax season. One form that can be particularly daunting is the IRS Form 8993, also known as the "Section 250 Deduction for Foreign-Derived Intangible Income (FDII) and Global Intangible Low-Taxed Income (GILTI)". This form is used to calculate the deduction for foreign-derived intangible income and global intangible low-taxed income. In this article, we'll provide you with 5 essential filing tips to help you master IRS Form 8993 and ensure a smooth tax filing process.

Understanding the Purpose of IRS Form 8993

Before we dive into the filing tips, it's essential to understand the purpose of IRS Form 8993. This form is used by taxpayers to calculate the deduction for foreign-derived intangible income (FDII) and global intangible low-taxed income (GILTI). FDII is the income earned by a domestic corporation from the sale of products or services to foreign persons, while GILTI is the income earned by a controlled foreign corporation (CFC) that is subject to a low effective tax rate.

Tip 1: Determine If You Need to File IRS Form 8993

Not all taxpayers are required to file IRS Form 8993. To determine if you need to file this form, you'll need to consider the following:

• Are you a domestic corporation with foreign-derived intangible income?
• Are you a shareholder of a controlled foreign corporation (CFC) with global intangible low-taxed income?
• Do you have a qualified business asset investment (QBAI) that is subject to a low effective tax rate?

If you answered "yes" to any of these questions, you'll likely need to file IRS Form 8993.

Who Needs to File IRS Form 8993?

The following taxpayers may need to file IRS Form 8993:

• Domestic corporations with foreign-derived intangible income
• Shareholders of controlled foreign corporations (CFCs) with global intangible low-taxed income
• Taxpayers with qualified business asset investment (QBAI) subject to a low effective tax rate

Tip 2: Gather Required Documents and Information

To complete IRS Form 8993, you'll need to gather the following documents and information:

• Financial statements, including balance sheets and income statements
• Documentation of foreign-derived intangible income and global intangible low-taxed income
• Information about qualified business asset investment (QBAI)
• Tax returns, including Form 1120, Form 1120-F, and Form 5471

It's essential to have all the required documents and information readily available to ensure accurate completion of the form.

Tip 3: Calculate Foreign-Derived Intangible Income (FDII)

Calculating foreign-derived intangible income (FDII) is a critical step in completing IRS Form 8993. To calculate FDII, you'll need to follow these steps:

1. Determine the total gross income from sales of products or services to foreign persons.
2. Allocate the total gross income to the foreign-derived intangible income.
3. Calculate the deduction for foreign-derived intangible income.

**Tip 4: Calculate Global Intangible Low-Taxed Income (GILTI)

Calculating global intangible low-taxed income (GILTI) is another critical step in completing IRS Form 8993. To calculate GILTI, you'll need to follow these steps:

1. Determine the total gross income of the controlled foreign corporation (CFC).
2. Allocate the total gross income to the global intangible low-taxed income.
3. Calculate the deduction for global intangible low-taxed income.

GILTI Calculation Example

Here's an example of how to calculate GILTI:

• Total gross income of CFC: $100,000
• Allocation to GILTI: 50%
• GILTI: $50,000
• Deduction for GILTI: 50% of $50,000 = $25,000

Tip 5: Review and Submit IRS Form 8993

Once you've completed IRS Form 8993, review it carefully for accuracy and completeness. Make sure to sign and date the form, and submit it with your tax return.

Common Mistakes to Avoid When Filing IRS Form 8993

Here are some common mistakes to avoid when filing IRS Form 8993:

• Inaccurate calculation of foreign-derived intangible income (FDII) or global intangible low-taxed income (GILTI)
• Failure to allocate income correctly
• Incomplete or missing documentation
• Failure to sign and date the form

By following these 5 essential filing tips, you can ensure a smooth and accurate filing process for IRS Form 8993.

We hope this article has provided you with valuable insights and tips for mastering IRS Form 8993. If you have any questions or need further guidance, please don't hesitate to comment below. Share this article with your colleagues and friends to help them navigate the complexities of tax season.